EU vs. Firm Linked to Hu Jintao

The World Trade Organization on Tuesday ruled that China violated international trade rules when it imposed import tariffs on security scanners made by European firms.

At first glance, this sounds like a minor chapter in the broader story of the tempestuous trade relationship between the European Union and China. But this particular trade dispute has an interesting wrinkle: It involves a company, Nuctech Company Limited, whose chief executive was Hu Haifeng, the son of Chinese President Hu Jintao.

In Dec. 2009, the European Union slapped duties of roughly 36% on Nuctech, the leading Chinese producer of security scanners, for selling X-ray scanners in Europe at unfairly low prices. Smiths Detection Group, a unit of the U.K.-based technology firm Smiths Group plc, filed the complaint with the European Commission, the EU’s executive arm, that led to duties.

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How do you become the leading security scanner company in China? You could be given an exclusive contract by the Chinese government to provide scanners to detect liquid explosives at all of China’s airports, as Nuctech was in 2006. Not only jaded cynics questioned whether that deal had something to do with the identity of the company’s chief executive.

Since then, Nuctech has won contracts around the world, including in Smiths’ backdoor in Europe. Nuctech’s rapid expansion sometimes landed it in trouble, most prominently in 2009 when Namibian investigators charged a Nuctech employee with paying kickbacks to win a security scanning contract with the Namibian ministry of finance. China censored news reports about the story, a possible sign of how concerned authorities were about Hu Jintao being linked to the corruption scandal at Nuctech.

Nuctech didn’t respond to a request for comment.

Before the scandal broke, Hu Haifeng had moved on – sort of – becoming Communist Party secretary of Tsinghua Holdings, a major shareholder in Nuctech and many other companies. (Tsinghua Holdings is owned by Tsinghua University in Beijing, which is Hu Jintao’s alma mater.) But after the EU imposed tariffs, China, as it occasionally does, decided to retaliate: It placed duties on EU X-ray scanners in January 2011 ranging from 33.5% to 71.8%. The EU cried foul to the WTO, which brings us to Tuesday’s ruling.

Trade disputes are complex; the WTO often rules for one side of the dispute on one issue and the other side on another. But Tuesday’s ruling appears to be a fairly convincing victory for the EU: The panel said China’s analysis backing up the duties was lacking in several areas.

So the tariffs must go, according to the WTO. But even if China complies, Smiths looks unlikely to gain a significant foothold in the booming Chinese market. After all, government entities in China decide which security scanners to buy, analysts say, and they are unlikely to pass over the products of their national champion, Nuctech.

Comments (1 of 1)

China should be forcibly removed, expelled from the WTO. As a member of the UN security council with veto powers, China should lose this position as well. They dont deserve such a responsibility. Why are thugs on the UN security council?

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The Wall Street Journal’s Brussels blog is produced by the Brussels bureau of The Wall Street Journal and Dow Jones Newswires. The bureau has been headed since 2009 by Stephen Fidler, who was previously a correspondent and editor for the Financial Times and Reuters. Also posting regularly: Matthew Dalton, Viktoria Dendrinou, Tom Fairless, Naftali Bendavid, Laurence Norman, Gabriele Steinhauser and Valentina Pop.